In 2008, Nick Sarillo’s team at Nick’s Pizza & Pub made the decision to abandon its expansion plans for a third restaurant, and refocus on its existing two.

(Based in Illinois, Nick’s Pizza & Pub is one of the top ten busiest independent pizza companies in per-store sales in the nation. Today, it has margins nearly twice that of the average pizza restaurant. Nick’s Pizza & Pub was also recently named one of Forbes’ Best Small Companies.)

PHOTO CAPTION: In an industry in which the average annual turnover rate is more than 150 percent, Nick’s Pizza and Pub boasts a less than 25 percent employee turnover rate. Nick credits his restaurant company’s success to its purpose-driven culture.

The difficult decision meant losing $300,000 that had already been invested. “We cobbled together a strategy and a budget that would allow us to discharge our debt within a year,” says Nick, sharing how his team—together—made the choice to do their best to recover despite the monumental debt they had incurred.

Despite a team that was unified, company financials were not healthy. Overhead at the time had ballooned to 10 to 12 percent of revenues. It needed to be closer to 6 to 8 percent.

Knowing more action needed to be taken, Nick sat down with his Operating Partner, Barry, who had originally been brought on to get the business to five restaurants. Barry was a great team member who embraced the company purpose and values. “From the moment he came onboard, he added structure to what we were doing, helping us develop systems around employee handbooks, our [training], our interview process, and our operations cards,” shares Nick.

But in keeping with the company’s transparency ethic, Nick had a candid conversation with Barry. Together, they came up with a plan to manage the overhead percentage by building up a catering business over the next 12 months, says Nick.

As the weeks and then months went by, the catering business did not come through. At the same time, company revenues were having a hard time sustaining Barry’s salary which was twice that of a normal manager.

Although Barry knew how to manage a profit-and-loss statement, and was very well-liked and had high energy, he wasn’t inspiring his team as a coach. “[Barry] was doing his best to improve the situation, but since he was so stressed out under the pressure, he wound up just creating more stress for the team around him,” says Nick.

Perhaps more than ever, Barry needed to perform at a much higher level than he was, and he needed to deliver better sales results for the business to become more stable.

Meanwhile, an emerging leader name Jenny, who was a manager at the time, was thriving in her role. Nick promoted her to Operating Partner at the second restaurant. By doing so, it made it more visible that Barry no longer was needed at the company.

As so many business owners can relate to, Nick waited and waited to do something about the situation. After all, he had worked alongside Barry for seven years at that point. “He was as much a brother and a friend as he was a partner. We both had the same intentions, values, and perspective on the business,” says Nick.

All along Nick continued hoping that the catering business would turn around. By October 2010, the financials had not improved, and it was clear he had to let Barry go.

“He was disappointed, but thanks to the transparency of our operations, he was not surprised,” explains Nick. “As he told me, ‘I believe in Nick’s so much that the company’s success is more important to me than my job. So let’s do what we have to do. This won’t be easy since I don’t want to leave, but I also realize I need to.’”

With Barry gone, Nick felt more alone in the company. He also felt that he was admitting his own failure. “I hadn’t been able to keep our relationship together, and I also hadn’t been growing the company at the pace I’d wanted,” says Nick.

Nick also had anxiety in sharing the news with the team. How would they interpret a key leader in the company moving on? How would the team stay energized despite the bad news? How would they feel about the future of the company? Would they be concerned the company was falling apart?

Despite his nerves, Nick had the conversation anyway, mindful of the company values and of “Safe Space.” (“Safe Space” is the concept and skill of setting aside space or room to have conversations that allow people to communicate more effectively and resolve issues without drama. It helps to deal with sensitive, challenging discussions or topics. By practicing these skills, people can become more self-aware and mindful of tone of voice, body language, word choice, and much more.)

“We needed to be transparent about having a key leader in our company move on. It was a big deal,” adds Nick.

Showing vulnerability, Nick shared the news to teams in pre-shift meetings, the same way they do whenever a team member leaves Nick’s Pizza & Pub. Nick told them the reason that Barry was moving on: the overhead percentage had to be reduced to better align with the business’ current sales. Second, Barry had been brought in to help the company expand to five restaurants, which wasn’t the priority anymore—or anytime in the foreseeable future.

“As it turned out, breaking the news was easier than I thought,” says Nick. While some team members were very sad, others showed empathy and support for Nick. Overall, team members consistently said that they knew it was a decision that was best for the business. Team members said, “This is the move we’ve been needing to make for a while now” and, “We believe in our team.”

The reaction, although a bit of a surprise to Nick, reflected the power of transparency and in being candid when breaking bad news to team members.

The team seemed to unify and come together, invigorated by their common purpose. Nick says he believes that because people had their chance to voice and show their reaction to Barry’s departure, his fears were not realized and there were few doubts coming from the team.

“People could quickly put the situation behind them and move our company ahead,” explains Nick.

“This whole episode, while painful in the moment, didn’t leave anyone wondering about what we were doing, why, and how people were feeling. Our company just came bouncing right back.”

Excerpts from this article came from Nick Sarillo’s book, A Slice of the Pie: How to Build a Big Little Business.

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